Capri Holdings Ltd. — Filing Summary
Filing and period note: The supplied filing is Michael Kors Holdings Limited’s Form 10-K, filed May 27, 2015, for the fiscal year ended March 28, 2015 (52 weeks), not a 2014 Q4 filing. The filing also provides unaudited results for the fiscal quarter ended March 28, 2015. The source does not identify the registrant as Capri Holdings Ltd.; verify the issuer and filing-period mapping before relying on this summary. Unless noted otherwise, amounts below are USD millions.
Business context and reporting period
Michael Kors operated a global luxury lifestyle business spanning retail, wholesale, and licensing, selling accessories, apparel, footwear, and licensed products. At year-end it had 526 stores and concessions and approximately 4,038 wholesale doors. Accessories represented 68.4% of net sales. Fiscal 2015 revenue mix was 48.8% retail, 47.3% wholesale, and 3.9% licensing.
Financial performance and liquidity
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Total revenue | $4,371.5 | $3,310.8 | +32.0% |
| Gross profit / margin | $2,647.7 / 60.6% | $2,016.1 / 60.9% | +31.3%; margin down 0.3 points |
| Operating income / margin | $1,257.0 / 28.8% | $1,008.2 / 30.5% | +24.7%; margin down 1.7 points |
| Net income | $881.0 | $661.5 | +33.2% |
| Diluted earnings per share | $4.28 | $3.22 | — |
| Operating cash flow | $857.9 | $633.1 | +$224.8 |
| Capital expenditures | $356.2 | $184.7 | +$171.5 |
Fiscal 2015 revenue growth reflected retail, wholesale, and licensing expansion, partly offset by $76.5 million of unfavorable currency effects; revenue growth was 34.3% on a constant-currency basis. Comparable-store sales rose 10.3% reported and 11.9% constant currency, versus 26.2% in FY2014. Retail sales increased 34.0%, wholesale 30.9%, and licensing revenue 22.4%.
Margins came under pressure as operating expenses grew faster than revenue. Management attributed lower gross margin chiefly to increased retail markdowns and discounts. SG&A rose 35.0%, and depreciation and amortization rose 73.8%, reflecting store and shop-in-shop expansion and systems investment. The effective tax rate fell to 29.8% from 34.4%, mainly due to a greater share of earnings in lower-tax jurisdictions and tax-structuring effects.
At March 28, 2015, cash and cash equivalents were $978.9 million, working capital was $1,687.4 million, and total assets were $2,691.9 million. The balance sheet reported no outstanding borrowings under the $200 million revolving facility; $189.2 million was available, with $10.8 million of letters of credit outstanding. Shareholders’ equity was $2,241.0 million. The company repurchased shares for approximately $492.8 million in cash during FY2015. Operating lease commitments totaled $1,592.7 million; inventory purchase obligations were $299.6 million.
Fiscal fourth-quarter results
For the quarter ended March 28, 2015, revenue was $1,081.0 million, gross profit $630.8 million, operating income $256.2 million, and net income $182.6 million. The comparable quarter of FY2014 reported revenue of $917.5 million, gross profit of $549.4 million, operating income of $245.9 million, and net income of $161.0 million.
Material changes, outlook, and risks
- Growth and expansion: Store count increased from 405 to 526. Management’s long-term objective was approximately 600 stores in North America and Europe, and it planned further international e-commerce launches. FY2016 capital expenditures were expected to be approximately $400 million. These are management plans, not guarantees.
- Currency and logistics: Management reported weakening of the euro and Canadian dollar, with approximately 21% and 12% year-over-year declines, respectively, against the U.S. dollar at the stated comparison points. West Coast port labor disruptions delayed inventory deliveries; structural damage at a third-party U.S. e-commerce fulfillment center also caused fourth-quarter shipping delays. Management said these disruptions adversely affected sales, expenses, and net income.
- Concentration and sourcing: The five largest wholesale customers generated 26.3% of FY2015 revenue; the largest, Federated, accounted for 13.7%. One manufacturing contractor produced 29.1% of finished products, and one sourcing agent handled 11.7% of finished-goods purchases. The company had no written agreements with its wholesale customers, manufacturers, or sourcing agents.
- Other key risks: Exposure to fashion and discretionary-spending cycles, intense competition and promotional pressure, foreign manufacturing and import rules, foreign-exchange movements, cybersecurity and IT disruptions, dependence on distribution facilities, long-term store leases, and reliance on key executives and the founder. The UK’s new Diverted Profits Tax took effect April 1, 2015; the company said its impact was uncertain.
- Contingencies and unusual items: Management said routine legal proceedings were not expected, in aggregate, to have a material adverse effect. FY2015 included $3.1 million of other income, including anti-counterfeiting proceeds and forward-contract and joint-venture gains. The company reported $21.2 million of long-term liabilities for uncertain tax positions.
Important facts for investors to verify
- Confirm that this Michael Kors Holdings Limited FY2015 10-K is the intended filing for Capri Holdings Ltd. and for the requested 2014 Q4 period.
- Assess whether sales growth can continue as comparable-store growth slowed to 10.3% from 26.2%, while operating and retail segment margins declined.
- Review the durability of cash generation against planned capital spending, share repurchases, and substantial lease commitments.
- Track currency exposure, fulfillment and port-disruption resolution, and the potential effect of the UK Diverted Profits Tax.
- Evaluate customer and supplier concentration, related-party licensing arrangements in Greater China, and execution risks in planned international expansion.